You need to know how to read trading charts to grow your capital and live off your trading. Master chart reading, and you can now ‘see the market. I’ve laid out the keys below to give you a good grounding.
Trading charts can view data over different intervals, such as monthly, weekly, daily, and intraday. Intraday charts commonly used include hourly, 15-minute, 5-minute, and 2-minute charts.
Which chart is best for intraday? It is the most popular hourly chart, but some traders swear by tick charts. It depends on your trading style and strategy.
Even if you day trade, you still want to keep up with the longer-term trends and understand how to read stock charts for day trading. Although not commonly used, monthly charts provide data for years or decades. Likewise, weekly charts offer longer-term data analysis, usually for over six months.
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Table of Contents
How to Read Stock Trading Charts
- Here are the simple steps on how to read trading charts:
- Understand that price action and candlesticks are the most important indicator
- Study the most popular candlestick patterns and reversal patterns
- Look for big patterns like cups and handles, ascending triangles, head, and shoulders
- Look for smaller patterns like bull flags and pennants
- Search for single reversal patterns such as dojos, hammers, spinning tops, shooting stars
- Look at two pattern reversals, such as haramis and engulfing patterns
- Watch for reversal three pattern completion, such as morning stars and evening stars
- Connect horizontal support and resistance levels
- Connect highs and lows to determine the overall trend of the stock
Analyzing Trading Charts
Let’s explore how to read candles in more detail since this chart is popular for advanced traders. The thin vertical line on a candlestick chart represents the high and low prices, like on a bar chart.
However, instead of horizontal lines for open and closed prices, the candlestick chart uses a wider bar called the “body.” Meanwhile, the highs and lows, called “wicks,” stick out of the body at both ends, resembling candles.
If the price drops below the opening price, the body appears red (or black). Conversely, if the price rises above the opening price, the body appears green (or clear or white).
If nobody appears, it signifies that the price opened and closed at the same amount.
Despite similarities, a candlestick chart gives a better view than a bar chart of the emotions driving the market.
Once you recognize the patterns, candlestick chart analysis indicates trends of optimism or panic selling.
How to Read Daily Trading Charts
What’s a daily chart? It’s one of the most commonly used charts for analyzing intermediate to short-term periods.
A daily chart works well to analyze periods of over six weeks. It is also an ideal chart to “read” the market.
The following price data is commonly displayed on charts, with each bar or candlestick representing your selected time interval.
- Opening Price: The price an instrument first trades for a given time interval.
- High Price: The top price of an interval’s trading range, offering price resistance.
- Low Price: The bottom of an interval’s trading range, providing price support.
- Closing Price: The price an instrument lasts trades before the subsequent time interval begins.
Our online trading courses teach you different trading strategies to use the daily chart.
Candlestick Charts
The candlestick chart resembles a bar chart in many ways. Both relay the same information. However, a candlestick chart focuses more on opening and closing prices.
Meanwhile, a bar chart draws more attention to the high and low prices. Understanding candlestick patterns will be your best ally in learning how to read trading charts.
What do the candlesticks mean on a stock chart? For starters, it depends on your chosen time interval. On a monthly chart, each candlestick or bar represents a month.
Likewise, on a weekly chart, each one represents a week. Then, on a daily chart, it’s a day. On an hourly chart, it’s an hour, then so on, right down to ticks.
COURSE |  |  |  |
|---|---|---|---|
| DESCRIPTION | Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action | Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading | How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading |
| INCLUDED | Daily watch lists • Trade rooms • Trading scanners • Discord • Live streaming Day Trading > | Daily watch lists • Trade rooms • Options scanners • Discord • Live streaming Options > | Futures target levels • Trade rooms • Real time teaching • Discord • Live streaming Futures > |
Time Frames Professional Traders Use
- Professional day traders use daily charts, 1-hour charts, and 5-minute charts for setups.
- Then, they use 1 minute for entries and exit on 1-minute or 5-minute charts.
- Professional swing traders use 1 hr chartsch1-hr daily and 5 min c5-minute for setups.
- They enter in 1 minute or 5 minutes. Then exit on a 1 hr or daily chart
- Long-term traders use daily, weekly, and monthly charts and exit the same
Patterns
Most candlestick patterns occur over a short term of one to three days. Also, the pattern’s location within the trend bears significance.
Day traders find them invaluable. Therefore, it’s necessary to know how to read stock charts for day trading to recognize the patterns.
Popular patterns include pennants, cups and handles, head and shoulders, and ascending or descending triangles.
So, which candlestick pattern is bullish? Several bullish patterns exist. For example, a bullish engulfing pattern reflects when the bulls take control.
It appears when a long green candlestick body follows a candlestick with a short red body. This pattern signals that the price could rise higher.
Patterns are extremely helpful when it comes to trading penny stocks along with large-cap stocks. A safe penny stocks list will always get plays based on the charts.
Bullish Patterns
- Belt Hold
- Doji Star
- Harami
- Harami Cross
- Hammer
- Morning Star
- Morning Doji Star
- Piercing Line
- Three White Soldiers
Likewise, multiple bearish patterns exist. For example, a bearish hanging man occurs during an uptrend. The candlestick displays a long lower wick at least two times longer than the body.
Also, it exhibits barely any upper wick, giving it the appearance of a hanging man. Check out our live trading rooms to see candlesticks in action.
Bearish Patterns
- Belt Hold
- Engulfing
- Harami
- Harami Cross
- Shooting Star
- Dark Cloud Cover
- Three Black Crows
Final Thoughts: How to Read Stock Trading Charts
Nearly all charting software features the option of candlestick charts. And most provide real-time streaming data for using trading charts live.
Also, many brokerages offer free candlestick charts as part of their complementary platforms.
Additionally, some companies, like TradingView, offer free online trading charts. View a free chart here.
Frequently Asked Questions
- Using a candlestick chart is best for trading any time frame
- 1 min, 5-minute, 1-hour, and daily charts are best for day trading
- 5 min, 1 hr, daily charts for short-term swing trading
- Daily and weekly chart for intermediate swing trading
- Daily, weekly, and monthly charts for long-term trading
A line chart is the most simple of the chart types. The line constitutes the closing prices for a set time frame. Although it doesn't provide as much information as most charts, it highlights closing prices. Line charts help traders see trends more easily. The reason is that it focuses solely on what many traders consider the most important price data.
A bar chart adds even more price data by including the daily price range. Therefore, you still get the closing price. But it also incorporates the opening, high, and low prices. Bar charts display vertical lines that begin and end with the high and low prices. Meanwhile, short horizontal lines on the bar show the open and closed prices.
The open price is located on the left side of the bar. At the same time, the close price is to the right.
If the price closed lower than it opened, the bar shows red. Conversely, if the price closed higher than it opened, you see a green (blue or black bar).
